Casualty Actuarial Society (CAS) Practice Exam

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Prepare for the Casualty Actuarial Society Exam with our quiz. Use flashcards and multiple-choice questions, each accompanied by hints and explanations. Ace the exam with confidence!

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What is a potential consequence of inaccurate exposure classifications?

Higher premiums for the insured
An inadequate deposit premium charge for renewal
Increased legal liabilities
Enhanced customer loyalty

The correct answer is: An inadequate deposit premium charge for renewal

Inaccurate exposure classifications can significantly impact the accuracy of premium calculations. When exposure is not accurately classified, it can lead to an inadequate deposit premium charge for renewal. This happens because the premium is determined based on the perceived risk associated with the exposure. If the classification underestimates the risk, the premium charged will be lower than what is actually necessary to cover potential losses. Consequently, during renewal, if the true exposure is realized or adjusted, the insurer may find that the deposited premium does not adequately cover the anticipated losses, leading to a financial shortfall. This situation can put the insurer at risk, as they might not collect sufficient premiums to cover claims, especially if claims experience increases for the incorrectly classified exposures. Thus, renewing policies based on inaccurate classifications can have direct consequences on the underwriting process and the financial stability of the insurance practice.